"All roads lead to Rome."
There are countless ways to accomplish any goal. I will share my unique experience, which is not meant as a blueprint or best approach but simply an anecdote on how I built my real estate portfolio. My strategy focuses on buy-and-hold investing, meaning when I purchase a property, I typically look for something I can and want to keep for 20-plus years as a rental. This dictates my decision-making, and as we'll talk about below, understanding your objective, goals, and strategy is critical to constantly remind yourself of. It's easy to get caught in shiny object syndrome, chasing every new asset class, plan, and big idea, and lose sight of what you set out to accomplish and the best approach for you. This doesn't mean you won't need to pivot, or your strategy won't change in your investing journey. Trust me, it will. However, it does mean that when you pivot or make a strategy change, it will be intentional and well thought through rather than chasing the hottest new idea.
Jumping right in, I will focus on the conceptual and tactical when discussing the building of my portfolio.
Education - Conceptual
Leading with strategy, real estate investing, just like anything, requires learning before you can do it. You can learn as you go, but a foundational understanding is essential before starting any new venture or task. On your most recent flight, I can assure you that your pilot spent significant time in a classroom outside of the cockpit before they reached the seat they are in today. Stakes vary depending on the activity, and a crucial step in the learning process is doing, but I'm sure we are all grateful that our pilots learn on the ground before they are in the air. This is crucial in understanding the progression of how we learn. Your physical life may not be at stake if you misstep with real estate investing, but your financial life absolutely can be.
I've spoken about this before in previous articles, but I spent significant time learning before investing in real estate. This doesn't mean you need a college degree. Still, it is best to understand real estate asset classes, your market or target markets, financing and debt, pitfalls, investing strategies, and fundamental real estate law. The channel you choose to gain this education is totally up to you. We live in the most information-rich time with accessibility never seen before. Books, podcasts, YouTube, mentors, courses, meetups, you name it, it's out there. Pick one to three channels that appeal to you and become a student of the game. Learn the basics and maybe a bit more. Speak the language. You will be excited and want to jump in, but take the time necessary to ensure you have the tools in your toolkit to set yourself up for success. Notice I say set up for success; plenty of well-educated people fail miserably. By taking the time to learn, you give yourself the best odds of success.
Education - Tactical
I'm always cautious of listing specific books, mentors, or learning channels as they tend to date themselves quickly. However, I want to be as detailed as possible in sharing my journey rather than just sharing the general framework. The channels I chose to build my real estate education were books, podcasts and forums, and mentors/networking. I will list some of the most impactful and memorable books that offer a great jumping-off point. You'll see that these are not all real estate-focused books. Real estate is a business; as with any business, finance is integral.
How to Invest in Real Estate by Brandon Turner and Josh Dorkin
The Millionaire Real Estate Investor by Gary Keller
The Book on Flipping Houses by J Scott
Never Split the Difference by Chris Voss
E-Myth by Michael Gerber
The 4-Hour Workweek by Tim Ferris
Rich Dad Poor Dad by Robert Kiyosaki
Think and Grow Rich by Napoleon Hill
The Millionaire Next Door by Thomas Stanley and William Danko
For forums and podcasts, I used BiggerPockets. The site has excellent resources with articles and forums on any scenario, with experienced investors providing insights. You can also post a question or topic and get engagement and feedback. The caveat is that, just like anything, especially on the internet, be wary of what you listen to.
Lastly, mentors and networking are an excellent resource tying into the concept earlier of a progression in learning. Some may have a different opinion, but before seeking a mentor or attending meetups, I would spend time learning using the above channels. The difficulty with immediately seeking a mentor is not knowing what you need or want to accomplish. The gap can be just too significant to gain value from the relationship. This isn't to say you can't just get right into finding a mentor, but if you don't know what you're looking for or need, how do you know when you've found it?
My mentor, when I first started, was monumental in helping me reach where I am today. I grew up playing soccer with his son, so I already had a relationship. Also, I was fortunate in that he loves to teach and help others. Once I had a base level of knowledge, I reached out to him frequently and asked questions. I also asked if I could attend events or look at properties with him. One critical point with this was I always made it convenient for him. If I wanted to meet, I did it at the best time for him and at the coffee shop directly next to his office. I asked him about his preferred communication style, email, so I emailed. I followed through with everything he advised me to do. When he recommended a book, I read it immediately and always followed up with a few key insights I gained. I always sought answers before turning to him. I never asked a question I could find the answer to on Google. I always emphasized my gratitude. This goes without explaining.
Lastly and most importantly especially if you don't have a relationship, I always looked for ways to bring value to him. Most successful real estate investors are incredibly busy and have people clamoring for their time. I sent him articles I thought he would find interesting, offered to do any tasks he needed no matter how tedious or boring, and used his network (attorneys, title companies, property inspectors, etc.) when doing deals and shared that he referred me.
Building Your Strategy and Executing - Conceptual
Building a strategy is the next step after you have a basic education. It's important to understand, too, that this is not a linear progression or that once you build your education and strategy, you never have to revisit. I have been investing in real estate since 2018 and am still learning daily. Your education helps you build the strategy you want to pursue, and once you hone in on your strategy, you have to go back and learn more about that strategy. This learning becomes more focused and advanced as you gain more experience and education. To determine your strategy, I would start with three key points.
Where are you now, and what are your goals/where do you want to go?
What are your skills, interests, experiences, and resources?
What is your time and energy capacity?
Defining your goals helps you determine the best way to get there. Reverse engineer your goals. If you want to generate enough cash flow to leave your W2 job, your strategy will differ from someone focused on appreciation. If you live in California, where property prices are high and rent-to-value is lower than in much of the country, you will likely want to find an out-of-state market.
For example, invest in a midwest state where property values are lower, and you will find better cash flow and rent-to-value. Suppose you have minimal cash and want to avoid raising capital. In that case, you will need to invest somewhere with lower property values or explore the strategy of owner-occupying a property where you can get a lower down payment.
Are you handy and enjoy carpentry or work in a trade? How can you leverage these experiences to serve your real estate career? Do you work in sales, and you're great with cold calling? You may be a doctor with cash to invest, but you don't have any time. This also ties into the next important point: what is your time and energy? A doctor with cash but no time will invest differently than an electrician with minimal capital. Knowing who you are and who you are not is critical. Knowing what you bring and what someone else can bring is vital. The last callout on strategy I have is that you have to have the ability to pivot. Work with what the market gives you and constantly ensure your portfolio meets your needs. I'll share more specifics on this in the tactical.
Once you have the education and strategy, it's time to execute. This is where most would-be investors fall short.
"A Good Plan, Violently Executed Now, Is Better Than a Perfect Plan Next Week," George Patton.
Analysis paralysis, waiting for the perfect deal, and obsessing over your business plan are more frequent than ever understood. Millions of business plans amount to nothing. Execution is what differentiates the best, not the business plan. I can only say a little here. You must ensure daily that you are taking the right actions to progress. This means picking up the phone and calling the bank or a mortgage broker to see what you need to do to become pre-qualified. Find a real estate agent and start reviewing deals. Make offers. Refrain from mistaking motion for progress.
Building My Strategy and Executing - Tactical
How I pulled this all together when I began investing in 2018. My goal was to generate enough cash flow to choose the work I do or don't do. With this goal, I knew I wanted to invest in a market with high rent-to-value. My specific goal when I started investing was $10,000/month in net income from rental properties (this is where I wanted to go). I had zero properties then and lived in the Midwest (this is where I was). My skills and interests were working with others, organizational development, sales, financial analysis, and negotiation. I had a high W2 income, minimal debt, and enough cash for a small down payment on an entry-level home (my resources). With this W2, I had minimal time and energy.
Putting my goals, skills, interests, and resources together translated to investing in an affordable market with high rent-to-value; the Midwest where I lived fit this goal: invest in a property where I would manage tenants (skill - working with others), leverage debt in the form of a mortgage (resources - W2 income to qualify), buy an owner-occupied property to get a lower down payment than investment property (resources - only enough cash for a small down payment), buy a property that was turn-key and didn't require a rehab (time and energy - I didn't have much after my W2).
I bought a turn-key duplex for $135,000, where I lived in half and rented the other half that would cash flow when I moved out. As described above, this fit where I was, my goals, where I wanted to go, my skills, interests, experiences, and resources.
Since buying that first property in 2018, I have purchased around ten properties constantly using those same key points. My goals, skills, interests, experiences, resources, and how I invest have changed. I am much more experienced and have more capital, but I have even less time than before, so now I don't have to owner-occupy to save cash on the down payment or buy turn-key because I'm less experienced. I can use my capital to fund deals and bring in a partner with more time and experience in construction or project management. You want to avoid a partnership with two people who only have capital or time. Find someone who has what you don't, and you have what they don't.
The market has changed as well. I mentioned this above, but the ability to constantly re-strategize and pivot is critical. I've sold properties I thought I'd hold forever despite being a primarily buy-and-hold focused investor to re-deploy capital in assets that better fit my current goals and offer better returns. My final point on strategy is to constantly self-reflect, review your portfolio, and continually optimize for where you are and where you want to go.
Pulling it all together, while it may seem daunting to build a multi-million dollar real estate portfolio, focusing on learning, self-reflecting, strategizing, and executing makes it 100% possible. You'll have to want it and put in the work, but like anything else in life, anything worth doing isn't easy.
Sources:
We Are The Mighty | By Team Mighty Published August 05, 2021. “11 Gen. George Patton Quotes That Show His Strategic Awesomeness.” Military.Com, 29 Mar. 2022, www.military.com/history/2021/08/05/11-general-george-patton-quotes-show-his-strategic-awesomeness.html#:~:text=%E2%80%9CLead%20Me%2C%20Follow%20Me%20or,mantra%20summed%20up%20his%20style.